Abstract

We estimate the social cost of eliminating energy outages in Chile's Central Interconnected System (SIC) with the hydrotermic dispatch model used to operate the system. We simulate the optimal operation with 1,000 random hydrology se-quences, and compute the maximum projected deficit, say X. We then estimate the additional permanent capacity needed to eliminate X. Our main conclusion is that much more than X MW are needed, and the cost is significant. For example, despite that reservoirs had plenty of water in October 2001, 685 MW of additional permanent capacity (equivalent to 11% of currently installed capacity) would have been needed to eliminate a 275 MW projected deficit, at a cost of nearly US$ 260.9 million. After a draught, 850 MW would be needed, at a cost of US$ 298.7 million.